RIM shot: Can BlackBerry regain its corporate ripeness?

Analysts have revised their forecast of doom for RIM, but can the company be #3?

In case you didn't catch it last week, the news that Research In Motion is in a "death spiral" has been greatly exaggerated. After the company announced its latest financial results, some analysts have changed their tune, and now believe RIM is back on the road to world domination—or at least isn't going to implode.

In advance of Research In Motion's quarterly financial report and its BlackBerry developer event this week, analysts were using words like "death spiral" to describe their projections for the company. After the report, some totally reversed their opinions. National Bank Financial's Kris Thompson (or as I call him, "Mr. Death Spiral") told The New York Times that essentially everything he said two days earlier was totally wrong. “Everyone was expecting the worst, and they really over-performed on every metric,” Thompson told the Times' Ian Austen.

On the surface, it's hard to tell what metrics Thompson is talking about. RIM sold fewer phones than it has in any quarter in the last four years, and its revenue from hardware sales is a little more than half of what it was for the same period a year ago. The PlayBook tablet's sales are still languishing, after a brief bump brought on by deep discounts. And RIM's revenue from services, while not in that advertised death spiral, were up just a percent.

There's not a whole lot from a product perspective to base the upgrade on, either. While RIM gave yet another advance look at its upcoming BlackBerry 10 mobile operating system at the BlackBerry Jam Americas developer conference, you still can't buy a phone that runs it—and it will likely be at least six months before you can. Developers have the tools to build BlackBerry 10 apps, including updates to the software emulator and the developer "alpha" hardware that RIM has put in their hands, and a Microsoft Visual Studio C/C++ plugin for porting applications from Windows—but there's no one to sell their apps to yet.

And make no mistake: RIM didn't magically become profitable again, either. The company is still losing money, and it shipped fewer phones in the last three months than it has in any quarter in the last four years. What exactly is there to be celebrated in there?

From a financial perspective, there's one big thing: somehow, without shipping a new product, and in the face of Apple, Android, and Microsoft product launches, the company has managed to slow its bleeding.

Enlarge/ While still losing money, RIM has pulled out of its financial dive.

Sean Gallagher, based on data from RIM financial statements

When RIM's CEO Thorsten Heins took the stick back in January when co-CEOs Mike Lazardis and Jim Balsillie were ejected from the cockpit, he took over a plane pointed at the ground. When you look at the company's net income as a percentage of revenue, it's clear things started to go bad with the release of BlackBerry OS 7—which the company had a hard time getting many users to adopt—and just got worse from there. Now, it looks like Heins has executed what seems like the financial version of a Hudson River landing after sucking a flock of geese through an engine.

For corporate and institutional managers who have been looking at their investment in RIM increasingly as a risk they need to start managing, this might be enough to prevent them from moving for a bit longer.

The power of low expectations

Seldom has losing nearly a quarter-billion dollars over three months looked so good. Apple reported that it sold 5 million phones over three days, and its stock price dropped 1.2 percent; RIM reported that it sold 7.4 million phones over three months, and its stock went up 17 percent. That's the power of setting low expectations—even bad news can be good news if you deliver it the right way. That includes finding a creative way to plead with developers to hang in there a little longer until a new platform ships:

RIM to developers: We're Gonna Keep on Lovin' You.

It also includes setting reasonable goals. Heins told BlackBerry Jam attendees, "We have a clear shot at being the number three platform on the market." And he's right—if BlackBerry 10 isn't delayed much longer, RIM has a shot at regaining some of its former glory as the official smartphone of corporate North America—at least enough of it to ease RIM into position behind Apple and the Android hive. The only real challenger for that position is Microsoft—and the only phone maker that's all-in on Windows Phone 8 is Nokia.

The power of the adoption curve

As it turns out, there is reason for hope buried in RIM's numbers, and in the tech that the company showed off this week at the BlackBerry Jam Americas conference. RIM has managed to make the most out of its lack of new phones by focusing on selling hard in places where that isn't as much of an issue. Despite the erosion of its share of the phone market in North America, the company has managed to keep getting existing customers to replace or upgrade their old BlackBerry phones with new ones even without 4G wireless or a high-volume app store. RIM marketed hard in Australia earlier this year, and also sold its phones heavily in markets where Apple and Android haven't had as much headway yet—Indonesia, for example.

As a result, while the company's sales of phones are still at the lowest point in four years, the average revenue for each of the phones it has sold has gone up. It's still nowhere near the high that RIM hit just before it introduced BlackBerry OS 7 in 2011, but RIM did manage to sell more of its high-end phones in the last three months. That's a stark change from when the company was leaning heavily on sales of its low-end phones overseas earlier this year. Additionally, while the company shipped 7.4 million phones, it grew its subscriber base to 80 million—up two million from the previous quarter.

The power of sucking less

While RIM's product line hasn't significantly changed in the past few months, something else has—people have gotten a good look at what competitors are offering the enterprise. And after getting that look…well, BlackBerry is looking pretty good. In a way, RIM has managed to turn "wait 'till BlackBerry 10" into a winning strategy—by biding its time and focusing on building its business overseas, filling in gaps in the sort-of-smartphone and feature-phone market, and avoiding the even more spectacular missteps of other competitors trying to stay relevant in Android's and Apple's wake. Nokia, which long held the leading global phone market, has embarked on an even-more spectacular course of self-destruction.

Nokia dumped its own mobile OS efforts and tied itself to the mast of Windows Phone. It hasn't exactly helped Nokia that much; Nokia sold four million Lumia phones in its quarter ending in June—before Microsoft threw them under the bus by announcing that the phones Nokia had already shipped wouldn't be upgradable to Windows Phone 8. And while there's certainly a lot of potential for Windows 8 Phone to play a big role in the enterprise, the OS is possibly even less ready for prime time than BlackBerry 10.

Meanwhile, RIM has focused on getting BlackBerry 10 right, continuing to invest in its own QNX Neutrino real-time OS, while giving developers tools to move applications over from other operating systems using Microsoft Visual Studio and the C and C++ programming languages. The BlackBerry OS and RIM's BlackBerry Messaging and Mail services still have a manageability and security edge over Microsoft's and other platforms.

The power of positive thinking

I want to believe. Yes, I may have written off RIM a few times since even before the company started its plunge, largely because of how badly managed RIM's response to the whole "bring your own device" phenomenon was (and the PlayBook, in particular).

But as a former IT manager, an early CrackBerry adopter, and a member of a generation that still likes the tactile feedback of actual physical buttons, I have a certain level of affinity for RIM. I would love to replace my battery-decimating iPhone 4S with a truly awesome BlackBerry 10—especially if it comes with an HD audio "O Canada" ringtone. And if the prices on PlayBooks come down any further, I may upgrade my daughter from her second-hand Samsung Galaxy Tab.

But as has been proven over and over again throughout tech history, having the best technology doesn't always mean a company will be successful—especially when that technology arrives long after the competition. So if RIM wants to push Microsoft out of contention for third place on the smartphone podium, they need to code faster.

Promoted Comments

Nokia sold four million Lumia phones in its quarter ending in June—before Microsoft threw them under the bus by announcing that the phones Nokia had already shipped wouldn't be upgradable to Windows 8 Phone.

Like Nokia didn't know that from the start.

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And while there's certainly a lot of potential for Windows 8 Phone to play a big role in the enterprise, the OS is possibly even less ready for prime time than BlackBerry 10.

WP8 already RTM'ed a while ago. It should be ready. (Though no-one knows why they didn't release the SDK yet. What's going on?)

Quote:

The BlackBerry OS and RIM's BlackBerry Messaging and Mail services still have a manageability and security edge over Microsoft's and other platforms.

From what I heard, WP8 is nicely manageable as well. And with things like the Trusted Secure Platform module chip, private app stores, SafeBoot and full device encryption, it might make Blackberry a little less stand out.

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And if the prices on PlayBooks come down any further, I may upgrade my daughter from her second-hand Samsung Galaxy Tab.

RIM is on the way out, as the NEW Blackberry has nothing to do with the old Blackberry. This will lead to the same issue that Windows Phone had, and that is that you need to start your market share back at square one. The existing install base will not attract developers to the platform. Most would classify Windows Phone as a colossal failure, and even those that view it as a qualified success would point to Microsoft's deep pockets as it's lifeline. RIM does not have a lifeline.

I don't see any option for RIM other than to be sold off to the likes of Samsung, Google, Microsoft, or Apple.

There is the security aspect of bbm, I know a fair few companies who baulk at the idea of letting any old device near their networks but who think blackberry is fine. I guess it's those who will drive some adoption, the rest is kids who use it for messaging as a killer app. As long as rim doesn't screw either camp, I think #3 is perfectly well within their grasp.

Good for them to give devs a long less time to port their apps too, that's refreshing. Good luck to them I say, having 3 competitors is beyer than only having 2 gorills fighting each other all the time.

Sounds like RIMM is up to some accounting shenanigans. One analysts commented that many retail outlets haven't sold a single BB in over a month. That makes sense to me considering RIMM's current offerings. Once someone leaves BB they never go back, BB10 won't change that...

I know it may seem like a small nitpick, but to me getting the name right of what you're covering (and Microsoft does play an important role here as they're the "other" #3) is pretty important for credibility. Further, that link of "where o where is WP8" is not very relevant any more as it's since gone RTM. Yes the (public) SDK is still MIA, but that's not as important for WP8 as the installed userbase of WP8 phones is exactly zero and it can float on the WP7 apps for a while. It will launch with a lot of apps, just not a lot of ones that make use of WP8 features.

RIM is on the way out, as the NEW Blackberry has nothing to do with the old Blackberry. This will lead to the same issue that Windows Phone had, and that is that you need to start your market share back at square one. The existing install base will not attract developers to the platform. Most would classify Windows Phone as a colossal failure, and even those that view it as a qualified success would point to Microsoft's deep pockets as it's lifeline. RIM does not have a lifeline.

I don't see any option for RIM other than to be sold off to the likes of Samsung, Google, Microsoft, or Apple.

You are correct. The new blackberry OS is a fulling POSIX compliant environment that can be coded with good olde C or C++.

What people tend to forget is that the BlackBerry is one of the few phones that security organizations can use/trust with a variety of classified information. So no, RIM is not heading down the flusher yet.

As much as I want to believe... they stopped losing money by letting go 1/3rd of their entire workforce. BB10 needs to be truly great and the hardware needs to be bleeding edge with design to match or they're out for good.

But as I mentioned, the article played up the few remaining strengths while completely failing to mention the thousands of workers let go to stop the financial bleeding.

Sounds like RIMM is up to some accounting shenanigans. One analysts commented that many retail outlets haven't sold a single BB in over a month. That makes sense to me considering RIMM's current offerings. Once someone leaves BB they never go back, BB10 won't change that...

This is essentially like saying, "the company is performing better than I expected, therefore they must be lying." That's a pretty substantial claim considering it's backed up solely by anecdotes and a self-made axiom.

Sounds like RIM is taking the steps it needs to to make a case for its business and new platform. Two remaining hurdles:

1. Next quarter's financial results (they will still be relying on their BB7 phones in that time period)

2. Launch of BB10

Here's to hoping they can pull themselves together so we can see 3 or 4 major OS competitors in the smartphone space.

I think the optimism about RIM depends on their ability to survive as a smaller company with a smaller market share.

But do you think a company can survive in the smartphone market with a small percentage of the market share? Apple survived and still survives in the computer market with a tiny market share. Many car companies live on tiny market shares.

Can a smartphone company survive with just a few percent market share?

The difference with smartphones is that companies like RIM don't sell to consumers. They sell to the wireless carriers.

The BYOD trend is exploding in full force especially on the smartphone segment. So a lot of the decisions are now being made on a personal level, and the business needs are secondary.

So why do people buy smartphones for personal use? It's mostly about the apps. As long as the OS and HW is not crap people will flock to where the apps are plentiful.

So unless BB10 has a great apps store with all the Angry Birds titles it's never coming back.

As a share holder in RIM I fully support them re-branding to the enterprise SW stack to be deployed on Android and iOS to turn a BYOD device into something reasonably secure for business. Punt the HW and OS and focus on this stack and they have a chance.

Analysts such as the one quoted in the story only know what's going on from quarter to quarter, for the most part. Most of them are very short-sighted and don't understand much more than reading quarterly P&Ls.

As much as I want to believe... they stopped losing money by letting go 1/3rd of their entire workforce. BB10 needs to be truly great and the hardware needs to be bleeding edge with design to match or they're out for good.

But as I mentioned, the article played up the few remaining strengths while completely failing to mention the thousands of workers let go to stop the financial bleeding.

I hope that with the current state of competition in the smartphone sector, those people who were laid off can find work with the other tech companies. I think it would be much better for the Canadian economy if RIM takes steps to survive as a smaller company (and potentially start to grow again) than die as a big company. As heartbreaking as it is to lose those employees, it would be even worse to lose the company altogether.

I smell another Nortel, its the last gasp, how many chances did analysts give them?...While they may serve a few companies with poor reasoning skills and to lock them into the BB lastest and greatest the world will have moved on...or the SEC gets told what they are doing by an insider and the cards come tumbling down. I never understood the appeal of BB after the iOS and Android devices ran circles around it, and wtf is a BBM and is that supposed to be special?

Kind of Shocking to see the author own up to the crow he was served so kudos there. Although I think the author is not aware of how much Microsoft has to grow just to take third place let alone hold it.

No chance RIM is coming back. They'd have to deliver on a phone and OS better than Samsung Apple...

Heck, people are wondering about Nokia, and they actually have a good a phone coming out with--likely--a decent OS.

If RIM ever delivers BB10, which is a big question in my mind, it won't matter. It's not as if the platform will have more cutting edge technology than the other guys, the build quality won't be up to say Apple's standards, their OS will be just another problem.

What RIM can do, is illustrate just how quickly a market leader can lose it (are you paying attention Apple?). Apple has lots more going for it, but RIM used to be a world beater.

I have been sitting on my Blackberry Bold since Feb, that was my contract expiration point. I waited for the iPhone 5 before making a move to upgrade. Most of my coworkers have switched to iPhone 4 or 4S. My other family members have Razr Maxx. I have fairly good experience playing around with the iPhones and the Droids. I have both an iPad and a Nexus 7 so I have pretty good experience with both OS. The iPhone 5? It doesn't impress me. I like the Maxx, especially for the battery life. Now, I will hang out and wait for the Maxx HD to see what it looks like.

But even with everyone teasing me with all of their fancy phones, I am feeling ever more comfortable with my BB. I don't live in the same world as a lot of people. I need to work for a living. I don't post on Facebook, surf the web constantly, or stream media. I handle hundreds of emails a day from multiple email accounts while on the road and I need to stay connected while travelling globally. The BB excels in these things, plus, I am still not convinced that having no hard keypad is "just as easy".

I am probably one of the 28 people who just might wait and give them another chance.

EDIT - oh yeah I forgot. I like the smaller size also, I don't like a big lump in my pocket.

Nokia sold four million Lumia phones in its quarter ending in June—before Microsoft threw them under the bus by announcing that the phones Nokia had already shipped wouldn't be upgradable to Windows 8 Phone.

Like Nokia didn't know that from the start.

Quote:

And while there's certainly a lot of potential for Windows 8 Phone to play a big role in the enterprise, the OS is possibly even less ready for prime time than BlackBerry 10.

WP8 already RTM'ed a while ago. It should be ready. (Though no-one knows why they didn't release the SDK yet. What's going on?)

Quote:

The BlackBerry OS and RIM's BlackBerry Messaging and Mail services still have a manageability and security edge over Microsoft's and other platforms.

From what I heard, WP8 is nicely manageable as well. And with things like the Trusted Secure Platform module chip, private app stores, SafeBoot and full device encryption, it might make Blackberry a little less stand out.

Quote:

And if the prices on PlayBooks come down any further, I may upgrade my daughter from her second-hand Samsung Galaxy Tab.

Good article. RIM is already in third place, well ahead of Windows Phone.

The important part about the recent earnings is that people were doubting that RIM would have enough cash to launch BB10, that is no longer an issue as they increased their cash position to $2.3 billion, and indicated on the earnings call that it would be relatively stable for next quarter as well. The cutbacks have allowed them to profit(eventually) on a lower level of sales. The release will happen.

BB10 looks great, whether people will buy it is another question, but they have a stronger brand everywhere in the world (except in the US it could be argued) than Windows Phone.

Unequivocally false. I've had several Android flagships and used the i4S extensively; if BlackBerry came out with a phone that could do the big four (i.e., phone, texting, email, and web) better than everyone else, I'd be back in a heartbeat.

I spoke with an uncle recently who's an executive director in JP Morgan's Investment Banking division, and he said that he'd take a new BlackBerry over his current iPhone 4S for work productivity any day of the week if they can return to their roots. Not only that, pretty much everyone in his department feels the same way. Even if they go touch instead of returning with phones that continue to have the best keyboard in the business, their push services are second-to-none and their utility is excellent. As he put it, the iPhone is great for playing with, and the BlackBerry gets things done. If they come back to that, I'm sold.

That being said, it could well be that BB10 will be too little, too late -- but I'm hoping for far better. BlackBerry 10 looks great, and I hope its usability is to match.

No chance RIM is coming back. They'd have to deliver on a phone and OS better than Samsung Apple...

Heck, people are wondering about Nokia, and they actually have a good a phone coming out with--likely--a decent OS.

If RIM ever delivers BB10, which is a big question in my mind, it won't matter. It's not as if the platform will have more cutting edge technology than the other guys, the build quality won't be up to say Apple's standards, their OS will be just another problem.

What RIM can do, is illustrate just how quickly a market leader can lose it (are you paying attention Apple?). Apple has lots more going for it, but RIM used to be a world beater.

I smell another Nortel, its the last gasp, how many chances did analysts give them?...While they may serve a few companies with poor reasoning skills and to lock them into the BB lastest and greatest the world will have moved on...or the SEC gets told what they are doing by an insider and the cards come tumbling down. I never understood the appeal of BB after the iOS and Android devices ran circles around it, and wtf is a BBM and is that supposed to be special?

out of curiosity, i pulled up their wikipedia page a couple days ago. i discovered they bought the QNX operating system, which is a Big Deal in the embedded market. i've not seen the actual numbers, but i wouldn't be surprised if QNX brings in a healthy return every year. they'll always have cash flow from this, unless they outright sell it for a lot of cash at once (which would be a bad sign).

more importantly, i still see a lot of people using blackberries. they tend to be older models, but i still see them a lot. if RIM can keep these people on with a couple reasonably good new models, they'll hang on to their share of the market.... even though they'll likely never reach their old heights.

people say, "can smartphones be a three-horse race?" when arguing about winfone. they forget that it already is!

Businesses need the ability to wipe phones, encrypt everything, and deploy custom apps. Pretty sure android can do all of that, not sure about the iPhone.

iOS devices can be remotely wiped via Exchange Management Console. My boss and I tried it with his iPad last year; hooked it in with ActiveSync, did a a remote wipe from EMC, and within 10s it set his iPad back to OOB.

I smell another Nortel, its the last gasp, how many chances did analysts give them?...While they may serve a few companies with poor reasoning skills and to lock them into the BB lastest and greatest the world will have moved on...or the SEC gets told what they are doing by an insider and the cards come tumbling down. I never understood the appeal of BB after the iOS and Android devices ran circles around it, and wtf is a BBM and is that supposed to be special?

Eguan (a leading data research company in China) has published marketshare data for smartphone operating system in China in the first quarter of 2012. According to the data provided, Android is still on the rise – and it’s a fairly steady climb from 68.4% up to 76.7%. On the other hand, Symbian smartphone market share has decreased, and iOS came behind Symbian.

While things may not be looking so good in the US market for Android, dropping 5% in market share compared to the last quarter, Canalys is reporting that Android has a very healthy global growth rate, reaching 68% in Q2 2012. This is compared to a year ago when Android only had 47% of the global market. Apple dropped from 18.9% a year ago to 16.4% globally in Q2 of this year.

What’s even more impressive is that Android grew in China from 70% in Q1 to 81% in Q2, which once again shows that pretty much everywhere outside North America people are more interested in buying affordable unlocked devices, than in paying expensive monthly fees for subsidized devices.

Seems most analysts agree android has between 75%-80% of the smartphone market in china.

Yeah, RIM is not doing that great in China or Australia, I think the author mixed up a couple of countries. Doing very well in India, Indonesia, Philippines, Nigeria, South Africa, Mexico, etc. Anywhere cheaper phones and data plans matter to customers and BBM has taken off as a cheaper alternative to texting.

I know sales figures are based on sales out of the company not to consumers in the mobile industry, but it is a positive sign that they are draining channel inventory, not stuffing the channel. Bodes well to somewhat cushion what should be another quarterly loss next time before BB10 phones hit the market.

Unequivocally false. I've had several Android flagships and used the i4S extensively; if BlackBerry came out with a phone that could do the big four (i.e., phone, texting, email, and web) better than everyone else, I'd be back in a heartbeat.

Same here. Just bought an iphone5, but if BB had a viable alternative I'd switch back.

Sean Gallagher / Sean is Ars Technica's IT Editor. A former Navy officer, systems administrator, and network systems integrator with 20 years of IT journalism experience, he lives and works in Baltimore, Maryland.